How Heat Drives Up Housing Costs

This article is part of The Rooftop, a blog and multimedia series from New America’s Future of Land and Housing program. Featuring insights from experts across diverse fields, the series is a home for bold ideas to improve housing in the United States and globally.

As the nation swelters through another record-breaking summer of extreme heat, millions of homeowners and renters can’t afford to stay cool. Inadequate housing infrastructure, from poor insulation to ineffective air conditioning, is a primary reason cooling costs keep rising.

The costs of coping with extreme heat are an overlooked contributor to the nation’s housing affordability crisis. If policymakers do not address this challenge, more families will fall behind on utility payments and risk service disconnection. And without power during extreme heat, homes can quickly become death traps.

Fortunately, state and local leaders can make a difference by advancing resilient cooling, a comprehensive approach that combines building, community, and grid improvements to keep homes safe and affordable during extreme heat. State and local policy action should focus on four strategies to advance cooling for all: (1) Expand access to affordable and effective cooling, (2) scale effective cooling measures across communities, (3) guarantee households’ rights to cooling, and (4) modernize utility financing models.

Extreme Heat and the Affordability Crisis

Between 1970 and 2022, 97 percent of surveyed U.S. locations experienced increases in cooling degree days (CDD)—an indicator of higher-than-normal temperatures that signal when extra cooling may be needed for comfort and safety. To meet the growing need for cooling, consumers have purchased and run conventional air conditioning (AC) systems en masse. According to the Energy Information Agency, AC use in U.S. households has doubled compared to 1970 and surged to 88 percent in 2020, one of the highest rates in the world. Unsurprisingly, as cooling demand rises, so do household bills. This is due to three key factors: the upfront costs of cooling devices, aging and inefficient homes and cooling systems, and growing electricity costs.

One in eight U.S. households still lack AC, a problem affecting more renters than homeowners. Local housing codes don’t typically require landlords to provide cooling, meaning tenants have to decide between paying out-of-pocket for AC or living without it. Between labor and equipment, costs can reach well over $10,000 for one household for central cooling. Even window AC units, which may offer lower up-front costs, come with higher operating costs due to low efficiency and low effectiveness at space cooling, especially when compared to energy-efficient systems.

“One in eight U.S. households still lack AC, a problem affecting more renters than homeowners.”

Compounding these factors, millions of Americans live in energy-inefficient homes that are more expensive to cool. Older homes, for one, have increased needs for critical maintenance, renovations, and upgrades, compounding the costs on families. Additionally, nearly one in 10 renter-occupied homes and over one in 20 homes overall were found by American Housing Survey data to be moderately or severely inadequate from a structural standpoint. AC units and electrical wiring in older and inadequate buildings often struggle to cope with increased cooling demands and are therefore more likely to fail. In Arizona, 117 people died indoors in 2023 as a result of non-functioning air conditioning units.

Running conventional AC is becoming prohibitively expensive; in some regions, AC accounts for up to 27 percent of household energy costs. The American Council for an Energy-Efficient Economy found that 67 percent of low-income households nationwide face high energy burdens, spending up to 10 percent of their income on energy bills. These higher energy cost burdens lead to more debt, raising the risk of a shut-off due to non-payment. Because of high costs, low-income households often delay turning on their air conditioning and, as a result, experience unsafe indoor temperatures that can cause heat-related illness and exacerbate chronic health conditions.

States and Local Policy Solutions for Resilient Cooling

The resilient cooling approach uses technologies and strategies that maintain safe indoor temperatures for all during extreme heat, working across three systems—buildings, communities, and the electric grid—to provide reliable, effective, and affordable cooling. Resilient cooling includes and goes beyond conventional AC to deliver heat relief and reduce household energy costs.

States are the primary regulators of utilities, energy, and building codes, and they also distribute federal and state taxpayer dollars. Local governments are responsible for implementing building standards and zoning codes, enforcing housing and health codes, and operating public housing and retrofit programs that directly affect access to cooling. Guided by the following key objectives, policymakers at these levels can pursue a range of strategies for resilient cooling to lower upfront cooling costs, reduce ongoing energy burdens, and incentivize private sector investment. (These tools and others are covered in greater depth in the Federation of American Scientists’ Resilient Cooling Policy and Strategy Toolkit.)

Expand access to affordable and effective cooling strategies: To make cooling more affordable and effective, states and local governments can prioritize expanding Weatherization Assistance Programs (WAPs) and utilizing targeted rebates and tax credit programs. Administered by states, tribal governments, and territories, WAPs leverage federal funding to provide grants to low-income households that can fund home retrofits to increase energy efficiency and reduce energy usage. Weatherization audits should be used to assess the cooling efficiency of a property, and then identify upgrades such as energy-efficient cooling systems (e.g., heat pumps and electric panel upgrades) as well as building structure improvements that offer passive cooling (e.g., low-energy strategies like reflective roofs and cool walls). WAP managers should also explore ways to overcome weather readiness challenges that make it difficult to weatherize older homes.

WAP funding can be complemented with additional state and local tax credit and rebate programs. There is also potential in Inflation Reduction Act rebates for households, which include the Home Efficiency Rebates Opportunity Program (HERO) to support qualifying whole-home energy efficiency upgrades that reduce energy use by at least 20 percent, and the Home Electrification & Appliance Rebates Program (HEAR) that supports electrifying appliances. These programs are being administered at the state level, and can be used to support eligible energy-efficient mechanical cooling systems as well as building envelope improvements, like insulation upgrades and and air sealing.

Scale cost-effective cooling solutions across communities: To further expand resilient cooling across communities, local governments can support bulk purchasing and updated zoning codes. Bulk purchasing is a financial incentive that lets building owners take advantage of volume discounts for resilient cooling technologies and strategies in their buildings, lowering prices for individual households. Solarize initiatives offer a model for bulk purchasing programs that can be applied by local governments to advance resilient cooling. These initiatives are designed to expand access to distributed energy technologies by reducing upfront costs, simplifying procurement, and providing long-term savings to customers.

At the community level, local governments can also leverage zoning codes to scale up cost-effective resilient cooling solutions—such as green infrastructure and shade structures—that lower temperatures neighborhood-wide and bring down overall cooling costs. Potential zoning strategies for exploration include requirements, overlay zoning, and density bonuses for green infrastructure.

Guarantee households’ rights to cooling: To guarantee the right to cool spaces, states and local governments can update their housing codes and protect people from utility disconnection.

While most housing codes require that landlords provide tenants with heat, few have provisions for cooling, even though exposure to unsafe indoor heat levels raises the risks for heat-related illnesses. Tenant protections should include indoor temperature requirements and require landlords to provide working cooling devices as an essential service for habitability.

Additionally, at least three million Americans have their power disconnected every year due to payment challenges. Yet 31 states have no policy preventing energy shut-offs during excessive heat events. State and local governments, to the extent possible, should establish disconnection policies informed by evidence-based best practices to save lives. For example, they can model their approach to cooling off of one that 32 states already apply for heating during the winter months.

Modernize utility financing models and rate designs: State public service commissions, which regulate utilities, can use innovative financing models to increase access to affordable, efficient cooling measures. On-bill financing (OBF), for instance, is an established method that allows customers to pay for energy efficient improvements through loans that are repaid on their monthly utility bills, often at low interest. Tariffed-on-bill financing models (TOBF) are a special type of OBF that states can pursue, via public utility regulation, to finance energy-efficient building upgrades like heat pump installation or cool roofs. Unlike other forms of OBF, TOBF programs are structured as utility investments: The utility provides the upfront capital and recovers the cost through a tariffed charge on the recipient customer’s bill, rather than through a loan repaid by the customer.

Additionally, rate design is an important factor for the operating costs of electric equipment. Flat annual kilowatt-hour (kWh) charges may be relatively unfavorable for households with energy-efficient appliances, as they dilute the financial value of reducing consumption or generating excess electricity. Time-of-use rates are more beneficial than flat rates, as they reward customers for shifting energy use to off-peak hours. Consumers can leverage demand-side management technologies like smart thermostats to take advantage of when energy is cheapest, lowering their bills while still maintaining safe indoor temperatures.

Finally, rising electricity prices are increasingly tied to the costs of distribution from an aging and inefficient grid. When upgrading the grid to better handle increasing temperatures, it’s critical to balance how much of these costs are passed onto consumers versus assumed by the utility.

As summer heat becomes more extreme nationwide, ensuring safe and affordable indoor environments must become a priority for policy intervention. Otherwise, rising temperatures will continue to push millions of people further into debt and danger. State and local governments should make use of the powerful tools at their disposal to improve cooling access, lower energy burdens, and protect people’s right to safe, livable housing.

Editor’s note: The views expressed in the articles on The Rooftop are those of the authors alone and do not necessarily reflect the opinions or policy positions of New America.